Amazon Sells More Kindles, But the Margins are Razor-Thin

It's a bold new day for reading. Amazon has just announced their financial results for Q4 of 2010. For the first time ever, the online retailer is now selling more Kindle books than paperback books. For every 100 "real" books, Amazon now moves 115 ebooks. Three times as many Kindle books sell as hardcover books.

The 3rd generation Kindle accomplished the most impressive milestone of all. It is now Amazon's bestselling product of all time, edging out "Harry Potter and the Deathly Hallows". The U.S. Kindle store currently includes 810,000 books.

The Kindle's success isn't the only thing Amazon has going. Q4 sales were up a total of 36%, to $12.95 billion. The company saw a total net income increase of 8%. This marks Amazon's first $10 billion quarter- an increase in net sales of 40%. Sounds awesome, right? Put in PR speak, Amazon had a damn good quarter.

But the Market didn't like something about their operating margins. Despite wild sales and huge gobs of money taken in, the company profit remained rather static. Some credit this to the extreme cost of subsidizing and pushing the Kindle.

See, the Kindle costs $33 less to make than it sells for. When you take the cost of software, patents, marketing, distribution, and licensing together, you're looking at a potential loss per Kindle sold.

Amazon is betting that, long term, their e-book business will make enough to offset the costs of pushing Kindles on every man, woman and child possible. It's too early to tell whether or not they're right, and Wall Street may not give them a chance to learn.